Financial calamity declared in Rio weeks before Olympics, but Games will go on

RIO DE JANEIRO — Just weeks before it stages the 2016 Olympic Games, the state government of Rio de Janeiro has declared a “state of public calamity in financial administration” and warned that the situation is so dire it impedes the locale’s ability to meet Games commitments.

The Olympics start Aug. 5 with Brazil already facing an impeachment trial of suspended President Dilma Rousseff, a public health crisis over the Zika epidemic and a deepening recession.

In an official decree published Friday afternoon by acting governor Francisco Dornelles, the state government said the crisis could cause a “total collapse in public security, health, education, transport and environmental management.”

Coming less than two months before the city hosts its first Olympic Games, the move stunned many in the Olympic city.

“It is completely unprecedented,” said Paulo Baía, a professor of political science at the Federal University of Rio de Janeiro. He said while Brazilian cities had previously made similar declarations, he had never seen such a move from a state before.

Less than two months before it hosts the Olympic Games, the Brazilian state of Rio de Janeiro has declared a state of financial emergency and has asked for funding during the Games. About half a million tourists are expected in Rio during the Games. (Reuters)

The measure was intended “to call the attention of the whole society of Rio to the problems the state has, opening the way for us to take very tough measures,” Dornelles said Friday.

Mário Andrada, executive director of communication for Rio 2016, said the Games would not be affected.

“We knew since last year that the financial state of Rio state was critical. We work with them every single day. They have fulfilled all their obligations for the Games. They created a state law for tax breaks that we were able to use,” Andrada said.

The state of Rio has 16 million inhabitants and relies heavily on royalties from the oil fields off its coast. Hit by falling revenues and the tumbling price of oil, the state has inched further and further into the red while a huge corruption crisis has left state-run oil firm Petrobras, one of Rio’s biggest companies, reeling.

Rio state government has been struggling to pay salaries and pensions, public hospitals have complained they lack basic supplies, and earlier this month, local media reported that the state-run morgue was forced to stop receiving bodies because subcontracted cleaning services were no longer being paid for.

The crisis has even affected the new metro line the state government is funding for the Olympics, which is now to be ready just days before the Games begin and will operate on a limited service.

On Friday morning, Rio state Finance Minister Julio Bueno said that if the state were a company, it would enter into judicial recovery. “I need the federal government to help me,” Bueno said, according to Brazilian news site G1, which reported a likely 2016 deficit of almost $6 billion for the state.

Bueno said that security was the state’s biggest cost. Police officers have been receiving salaries months in arrears. Since 2008, the state has spent heavily on a “pacification” policy to install armed police bases in dangerous favelas run by drug gangs. As security has worsened and violent crime has risen in recent months, officers in some favelas have increasingly stayed confined to base.

Andrada said Olympic security would not be compromised, as it is a federal government responsibility. “Most of the resources, funding, equipment and manpower comes from federal [government],” he said.

Baía, the political scientist, said the decree was a “political maneuver” and a desperate measure that would enable the government to get emergency financing from private lenders and avoid lengthy bid rounds.

“It means that Gov. Dornelles can get loans without the authorization of the state assembly. They need to pay public servants during the Olympics to avoid public protests. He can contract services without bid loans,” Baía said.

Others said the decree was a legal device for the state to get more money out of the federal government, which it would otherwise be unable to do because of Brazil’s fiscal responsibility law for public authorities.

“The state of Rio has widely exceeded the limit for debt that it can legally have. The only way that they can get more financial help from the union is in the case of calamity,” said an Olympic official with knowledge of the subject, who was speaking anonymously because he was not authorized to discuss the subject publicly.

The official admitted the issuing of the decree had come as a surprise.

“They were not explicit in the issuing of a decree, but we Brazilians know how things like this have to move,” the official said.

The state decree said the authorities would adopt “exceptional measures to rationalize all essential public services, with a view to holding the Games.”

Brazilian media reported late Friday that Temer had approved the decree as a device to free up $850 million of emergency government money. Rio Mayor Eduardo Paes tweeted Friday that the decree would not cause any delays — his city government is responsible for many of the Olympic works.